How big of a HELOC can I get?

The size of the credit limit a lender will set on your Home Equity Line of credit is determined by a number of factors, but the main two being the maximum Loan To Value ratio (LTV ratio) that they will allow, the current value of your property and the amount of current debts that you have secured against it.  Because a heloc is an equity loan, you are borrowing against the percieved value of your home, and this can change over time both with market trends and with changes in your personal circumstances. 

Factors influencing Heloc size and why they matter

As noted above, there are a number of factors that affect how big of a line of credit your lender will be prepared to offer.  Lets look at the three main factors in more detail:

1.  Loan to Value Ratio:  The LTV ratio is a measurement set by the lender and this has possibly the biggest impact on how big of a heloc you can get.  Many lenders used to offer 90% or even 95% LTV's on equity loans in the past, but in todays real estate market an LTV ratio of 80-85% is more likely. 

 

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An 85% LTV means that the total amount of debt allowable against your property cannot come to more than 85% of it's total value.  So, if you have a home worth $100,000 you can have a total of not more that $85,000 in Debts against it, including the HELOC.

 2.  Current market Value:  The second factor is the current value of your property.  If you've owned your home for many years it may be hard to get a good idea of it's current value, and in almost all cases a valuation may be required by the lender before they will agree to arrange a line of credit.  The value of your property is assessed at the time you apply for the heloc, and thats it.  It's is not constantly re-assessed, so once the lender has arrived at a figure regarding the value of your home, that is what will be used in calculating the limit of the heloc.  If you're property rises or falls in value while you have a Heloc in place, this will not affect the credit limit that has been established.

3.  Equity/Other debts:  The third factor is how much other debt is secured against that property.  If you have a mortgage secured against the home, this will affect how much the lender is willing to lend.  Likewise if there are any other secured debts this will reduce the available equity in the property, thus making the total amount available lower.

So to take an example of how these factors work together lets look at a typical scenario:

Jane want to arrnage a Heloc against her home.  The lender she approaches allows a maximum LTV ratio of 85%.  Janes home is assessed with a current market value of $120,000.  Given an 85% max. LTV, this means the total debt allowable by the lender including the heloc would be 85% of 120,000 or $102,000.

Jane has a mortgage of $65,000 already in place, as well as an equity loan she took out a year ago of $10,000 for some renovations that have gone over budget.  Given that she has a total of $75,000 of debt already, Jane would be eleigible for a maximum Home Equity Line of Credit of $27,000

You can also use our Heloc Calculator to quickly work out how much you can borrow.

Standard Lending Criteria still apply.

It's impertant to remember that in addition to the above factors, standard lending criteria still apply, including credit checks and debt servicing ability.  In Janes case, her application could still be declined, or the maximum amount offered could be reduced if she has a bad credit score, or insufficient earning capacity to service repayments of a full $27,000 heloc.  The above calculatiosn only indicate the MAXIMUM amount a lender could offer, and this may still be limited by other factors  

Bigger is Better?

Unlike other loans, a Home Equity Line of Credit only accumulates interest on the amount used which means that in theory you have nothing to lose by taking the largest line of credit you can - afterall if you don't use it you don't have to pay any interest.  In practicality however it may be best to limit the size of your Heloc voluntarily.  Just like having a credit card with a huge limit, it can be tempting to overuse this facility and this can result in debts getting out of hand.  Common sense applies, and bigger isn't necessarily better.